The Pension Protection Fund (PPF) has estimated the levy for 2015/16 will be £635m.
The PPF said the new estimate for the amount eligible UK DB schemes will have to pay is almost 10% less than the £695m it is expecting to collect this year (2014/15).
The lifeboat fund also hopes to keep the formula that determines each employer’s levy the same in the following two levy periods – 2016/17 and 2017/18 – and anticipates that this will see levies fall further as the numbers fed into the formula change.
The estimate was published as the PPF announced the proposed levy rules for 2015/16 following its consultation that ran between May and July this year.
PPF chief executive Alan Rubenstein (pictured) said: “We recently said in our Funding Strategy Update that we remain on course to meet our long-term funding target of self-sufficiency by 2030, but substantial risks remain. We have therefore chosen to continue our approach from the first triennium in setting the overall levy rate for the coming year. This means we have sought to neutralise the wider levy changes, allowing the impact of improved funding to bring the quantum down. As a result we will seek to collect a reduced amount in 2015/16 in line with changes in current risk that we have seen. While the future is inevitably uncertain, levy estimates for the following two years appear likely to fall further rather than rise, based on the expected path of asset values and yields.”
The PPF said there was strong stakeholder support in the consultation responses for the move from Dun & Bradstreet to Experian as the new insolvency risk provider and for the PPF-specific model for assessing risk.
Enhancements to the model include amended rules on how it reflects mortgages – ensuring mortgages that are not relevant to insolvency risk are excluded; and a revised approach to asset backed contributions (ABCs). The PPF will now recognise all asset types not just UK property, provided the ABC is valued in a way that reflects the value to the PPF in the event of insolvency.
Barnett Waddingham partner Nick Griggs said he welcomed the proposal to remove certain mortgages from the insolvency risk model, the inclusion of which he sad was “was a major drawback of the original proposals”.
He added: “While improvements have been made, anomalies remain in the model that many will perceive as unfair. Some of these are inevitable given the PPF’s desire to produce a simple and statistically robust model – many employers will simply not fit the average profile of the companies the PPF’s model is based on.
“The PPF’s announcement that their target total levy is less than in previous years is of course welcome, but employers should beware that the change from D&B to Experian can mean significant changes to individual schemes’ levies.”
Elsewhere, Towers Watson senior consultant Joanne Shepard said: “Employers may be disappointed that the bill they’ve been presented with isn’t smaller: £635m is the amount the PPF would have expected to collect with no changes to the levy rules; in that sense, this isn’t really a levy cut.
“However, fixing the formula for three years is expected to see levies fall further as ‘bad years’ drop out of the period over which scheme funding levels are smoothed for levy calculations.”
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